CChris
Stowers for Asiaweek.
In the fight against cronyism, Malaysian economist Jomo has endured
public attacks, lawsuits and death threats.

The
War Against Cronies Malaysia's
Jomo Kwame Sundaram is on the frontlines of the struggle to change Asia's
business culture. Here's why it is taking foreverBy
ALEJANDRO REYESALSO
 Connections: Li Ka-shing
has got them
 Fall: Suharto's buddies
are fighting their way back
 Fighter: Sabri Zain on
the new Malaysia
 Reformers: Crusaders
wage war against corruption
 Cronyism in Asia: A primer

The fire in Jomo Kwame Sundaram's eyes probably began to burn on July
21, 1983. On that muggy Thursday the Malaysian economist's college schoolmate
Jalil Ibrahim was found dead in the underbrush of a banana tree grove
in Hong Kong's rural New Territories. Police reckoned that 36 hours before,
after lunch and coffee with somebody in his room at the Tsimshatsui tourist
district's luxury Regent Hotel, Jalil was strangled with a white bathrobe
belt. His body was stuffed into a large suitcase, which a porter was told
to cart through the Regent lobby and load into a taxi trunk.

Mak Foon Than, a Malaysian businessman, was later jailed for the murder.
A 35-year-old executive of Malaysia's state-owned Bank Bumiputra, Jalil
was sent to Hong Kong to investigate losses at its subsidiary, Bumiputra
Malaysia Finance. BMF had lent to some shaky companies, including the
giant Carrian Group headed by Malaysian-born businessman George Tan, which
eventually crashed in October 1983. Among other things, Jalil had tried
to find out who owned a block of 25 million Carrian shares and whether
loans had gone to undeserving but well-connected borrowers.

"Jalil was a good and honest man, and his death was a turning point for
me," recalls Jomo, 47, grimly. His friend's killing led the Universiti
Malaya professor to his life mission: the fight against cronyism, the
cozy and often corrupt connections between politicians and businesses.
In a country where such ties are commonplace (though not necessarily illegal
or even improper), Penang-born Jomo has stood against the tide 
and faced down personal attacks and lawsuits. He has also received death
threats, including, he recalls, a letter soaked in blood warning against
his activism.

FIGHTING
CRONYISM

The
struggle will demand an end to unquestioning feudal ways,
the creation of new institutions, the enforcement of stricter
laws --and dogged perseverance. A four-point plan:

LIBERALIZE.
Reduce the state's power to control business activity. That
would lessen the incentive to buy influence.

OPEN
UP. Allow the media to expose crony deals. Publicize
the details of all big government contracts.

CATCH
THE BIG FISH. In probing and prosecuting sleaze, hit
top people and big money. That will scare the small fry.

DON'T
LET UP. That's the only way to keep the house clean
-- and to eventually change a nation's attitudes.

Named
after two African nationalist leaders, Jomo fights at the frontlines of
Asia's war on cronyism, along with other prominent opponents of impropriety
in public office (see stories, page 50). Firing up their struggle have
been the spread of democracy in recent decades, the Asian Economic Crisis
of 1997-98 and the global push for better governance, transparency and
accountability. The ongoing political storm rocking Philippine President
Joseph Estrada (see story this issue),
accused of taking millions in illicit gambling money from a crony, is
but the latest public eruption over the endemic cronyism afflicting Asia.

Jomo fumes that in Malaysia "practically every big businessman has had
to ingratiate himself with politicians." That statement applies to much
of the region, from Indian industrialists pleading for licenses to Japanese
contractors bidding for infrastructure projects. And if Asia is to stay
competitive and stave off another meltdown, it must not let up on its
crusade against crony politics. "Cronyism does big damage to the economy,"
says Perfecto Yasay, former head of Manila's Securities and Exchange Commission,
who had alleged that Estrada tried to pressure him into clearing a friend
in a stock manipulation probe.

Besides giving a privileged few obscenely huge gains at public expense,
cronyism discourages investment by the great majority of firms which don't
know people in high places. That translates into slower economic growth,
lower government revenues and fewer jobs. Scandals over shady deals can
destabilize governments and unseat national leaders. Reprising the 1986
People Power protests that brought down Philippine president Ferdinand
Marcos, Indonesian students railing against "KKN"  Bahasa initials
for cronyism, corruption and nepotism  forced Suharto to resign
in May 1998. Two Pakistan prime ministers, Benazir Bhutto and Nawaz Sharif,
also fell amid charges of rampant corruption  a fate Estrada is
now battling to avoid in the Philippines.

If cronyism is such bad news, why is it still stubbornly flourishing?
One immediate reason: the region's economic rebound, which has dulled
the zeal for painful change. "When you have growth rates of 6%, 7% or
8%, people feel the pressure is off," says World Bank president James
Wolfensohn. At last month's IMF-World Bank annual meetings in Prague,
he cited flagging reform in the three nations worst hit by the Crisis:
Indonesia, South Korea and Thailand. Wolfensohn warns: "You can mask the
problems by economic growth, but you have within it the seeds of the next
crisis."

In Seoul, for example, President Kim Dae Jung "was elected to deal with
corruption and cronyism, but has not yet been successful in doing so,"
the World Bank chief laments. Kim has used state power to try to force
leading chaebol to restructure, and to reduce their influence in government.
But business groups like Daewoo and Hyundai have been able to rebuff many
of Seoul's restructuring demands, and in thousands of companies and agencies
across the country, contacts forged in school, at work or in business
still afford advantages to the well-connected.

The long, bruising fight, however, comes as no surprise to veterans of
the war on cronyism. Like President Kim, whose decades of struggling for
peace, human rights and democracy was finally recognized with this year's
Nobel Peace Prize, the investigators, journalists, academics and bureaucrats
taking aim at anomalies know that they must dig in for a protracted battle
against daunting odds and powerful forces. "This is a cultural thing that
you cannot end overnight," says Lee Seog Hyun, secretary general of the
Citizens' Coalition for Economic Justice, South Korea's largest NGO and
a staunch opponent of chaebol dominance and clout.

Jomo
certainly knows how relentless the struggle is and how strong the forces
ranged against reformers. Over the decades, he has written or co-written
81 books on political economy, especially the links between business and
politics. One of them, The Political Economy of Malaysia, co-authored
with his colleague Terrence Gomez in 1997, spurred calls for change from
the opposition and even members of the dominant United Malays National
Organization. Harvard- and Yale-educated Jomo has emerged as one of the
harshest critics of Prime Minister Mahathir Mohamad's government (the
PM no longer shakes his hand when they meet), though Jomo has not joined
any opposition party.

One difficulty about fighting cronyism is that doing so seems to go against
Asian ways. Rooted in centuries of feudal and peasant life, personal relationships
and patronage have long been a part of politics and business in the region.
Moreover, decades of government involvement in national economies, whether
socialist like China or capitalist like Japan, have promoted close ties
between officials and business people. Such cooperation has even been
praised for driving East Asia's so-called economic miracle; its one-time
admirers included the World Bank, now a leading critic of cronyism.

In authoritarian regimes, strongmen like Suharto and Marcos skillfully
used business links and grants and favors for friends as convenient and
necessary means of maintaining support and enriching their families. But
even when democracy came to the Philippines, South Korea, Pakistan and
other countries, irregularities didn't disappear. Instead, the need for
mammoth funds to mount election campaigns allowed big business to keep
buying influence. The list of Estrada's alleged cronies, for instance,
mirrors the bankrollers of his successful presidential candidacy in 1998.

Notably, too, most Asian nations are at a stage of development where America
was in the early part of the 20th century. Cronyism was rampant in the
U.S. then  indeed, it was in America at the time that the word was
first used with its current meaning  and it took the Crash of 1929
and the Great Depression to push the U.S. to develop institutions, laws
and social attitudes that diminished the practice. That is what Asian
nations need to do now: enact laws, create structures and, most important,
change social behavior and thinking to ensure that cronyism doesn't pay.

For now, some have even argued that using connections can be an effective
way  even the only way  for businessmen to cut through red
tape and for governments to get priority projects off the ground. In India,
says constitutional lawyer Rajeev Dhawan, businessmen have no choice but
to play the crony game. "If you want any government contract, you will
have to be routed through someone," he argues. "What people call cronies
are really a highly centralized gangster army of middlemen." Hilton Root,
a Los Angeles-based economist with many years experience in Asia, adds
that cronyism arrangements and ownership structures like the chaebol are
ways in which businesses cope with the uncertainties of a society lacking
in reliable institutions.

In fact, the law may not even punish cronyism. "For a long time, criticism
of cronyism was not taken seriously, because there was no violation of
the law as such," Jomo explains. "Corruption was different because it
was illegal, while cronyism was considered to be legal." The law may even
punish those who expose crony deals; whistleblowing officials could be
charged with divulging state secrets, a common occurrence in China and
worrisome enough in some other authoritarian nations. Says Jomo: "Almost
everything has become confidential. As far as the government is concerned,
when in doubt, chop it as secret." (For all his exposes, though, Jomo
has not run afoul of Malaysia's Official Secrets Act.)

Efficiency can become an excuse for special arrangements. Last year, the
Hong Kong government denied allegations that it had awarded the Cyberport
office and residential development to Richard Li Tzar-kai's Pacific Century
Group without the usual tender because of Li's tycoon father Li Ka-shing's
close connections to Chief Executive Tung Chee-hwa and to China. Officials
insisted that Pacific Century was the one company with the required expertise
and that a speedy selection was imperative for the project to be launched
as quickly as possible. But the appearance of conflict of interest did
Hong Kong's reputation damage.

Estrada has suggested that if a crony delivers, then favoritism, if there
had been any, may be justified. "He's a good crony," he once said to counter
allegations that pal Eduardo "Danding" Cojuangco, chairman of food and
beverage conglomerate San Miguel, is profiting from their friendship.
"Danding does not owe money to the government," said the president. "He
has made San Miguel profitable again." For his part, Mahathir has called
every Malaysian his crony, while businessmen reputed to be close to him
have simply shrugged off criticism of their apparent relationship.

Sadly, many Asians have the same uncaring attitude. Across the region,
the public has often been all too willing to accept that ends-justify-the-means
line of defense and tolerate sleaze  to a point. Says Beijing taxi
driver Zhang: "We actually don't mind if government officials are corrupt.
As long as they accomplish things for society at large, that's okay. What
we don't like are those officials who take public money and don't perform."

Common, too, is the argument that cronyism will die out naturally 
that as Asian economies develop and societies become wealthier, corruption
will diminish. Not true, says lawyer Dhawan. Feudal social orders certainly
foster cronyism, but it is very much a modern scourge that can plague
even developed economies and must be fought with new thinking and innovative
solutions. "While earlier cronies were old, wizened people, there is a
new breed around  younger and more experienced," Dhawan explains.
"They work in concentric circles around the center of power."

New or old, however, cronies often share some underhanded methods. Last
year, Jomo came under intense pressure from a well-connected business
group whose contracts with the government he had written about. Some visitors
to his office threatened lawsuits, while offering to help him out with
easy credit. "These people thought we knew more about some wheeling and
dealing than we actually did," Jomo recalls. "You have a family, so think
of them, they said. We will take you all the way [to court]. We will bankrupt
you. You won't get a job anywhere." He continued his exposEs; he has stood
up to pressure before. In 1986 he was the first professor in Malaysia
ever to be demoted. He got a promotion again only in 1991.

Even when a social upheaval brings down a corruption-ridden regime along
with its hangers-on, new cronies could arise, along with some old ones.
Much has been made of the return of Cojuangco and Lucio Tan, who made
fortunes under Marcos and have regained clout after supporting Estrada.
In South Korea, campaigns against chaebol dominance needs to take account
of how cutting them down to size may hurt the economy and employment.

In Indonesia, new cronyism is not much of a problem  yet. "The economy
is so flat that there are no big deals to pervert," says Jim Castle, founder
of Jakarta consulting firm Castle Group. But there are concerns about
deals covering the huge debts and banking interests taken over by the
Indonesian Bank Restructuring Agency. IBRA is taking a second look at
assets turned over to the state by owners of banks that went bust and
had to be rescued. Meanwhile, the World Bank and the IMF have questioned
a $2.7-billion debt restructuring deal with the Texmaco Group.

In the fight against cronyism, as with any disease, prevention is far
better than cure. Perhaps the best way to cut out sleaze is freeing up
business sectors and removing the incentive to cultivate connections for
commercial advantage. That includes lowering import tariffs and quotas.
Another important preventive is limiting election spending, which Thailand's
new constitution has tried to do. In the Philippines, former House speaker
and presidential candidate Jose de Venecia proposes that the state fund
presidential campaigns. Otherwise, "candidates will continue to be beholden
to big business for support. This system breeds cronyism." Yasay suggests
limits on how much an individual contributor can give a candidate: "If
somebody gives 2 billion pesos, then the candidate, if he wins, has to
repay that."

For South Korean political scientist Lee Ki Taek, political maturity is
the only way to curb cronyism. The Yonsei University professor wants to
see election campaigns focus on issues rather than personalities. That
would limit the incentive to support and gain influence with particular
politicians. But Lee has an even better idea: the introduction of transparency
in all aspects of politics and business, particularly when it comes to
the interaction of vested interests and officials. "Cronyism will gradually
disappear if we have a legal and transparent lobbying system," he says.
In short, require all dealings affecting the public interest to be made
public. For instance, all contracts worth, say, $100,000 or more should
be detailed on the Internet, with the names of winning bidders and their
beneficial owners published. If certain parties keep getting the deals,
the public can ask questions and check things out.

Transparency will help promote accountability  another necessary
remedy to cronyism, says Eddie Leung, chief editor of activist newspaper
Hong Kong Voice of Democracy. Accountability, he carps, "is just a joke
here." He recalls a recent scandal involving defective apartment blocks
built by the Housing Authority, for which no one was penalized (though
the authority's chief resigned). He adds that Hong Kong Chief Executive
Tung Chee-hwa "is not elected by the people so there is no way that he
is accountable to the people. The only one Tung needs to be accountable
to is Beijing."

Certainly, if the public has no way of removing an errant official, the
corrupt will more easily thrive. In China's ongoing crackdown on corruption,
the Communist Party leadership still decides who gets the ax, and one
Politburo member allied with President Jiang Zemin has allegedly been
spared, despite his wife's involvement in a $10-billion smuggling scandal.

Lawyer Arittha Wickramanayake, chairman of the Sri Lanka chapter of anti-corruption
coalition Transparency International (TI), looks to a generational change
to eventually put merit above connections. That will happen in his country
if, as he predicts, a new class of state-educated professionals without
family connections or friends in high places emerges. "Their expectations
are high," Wickramanayake explains. Thailand's former prime minister Anand
Panyarachun, TI's chairman in Bangkok, agrees. He says even family businesses
that have long worked political links for profit "realize that the writing
is on the wall" (see interview, page 53). Lucio Tan Jr., a son of the
Estrada-linked tycoon, said in a recent interview that he aims to cleanse
the family reputation partly by being more transparent in business.

Building public awareness through protests and exposes, as Jomo has done,
is crucial to shifting social attitudes away from the feudal subservience
that lies at the core of cronyism and the public's acceptance of it. "What
we have been writing and talking about for 10 to 15 years has been in
public discussion over the past two-and-a-half years," says the academic.
"People are aware of [cronyism] and condemning it. This is a major achievement."
Hopefully, the new spirit will spread fast enough to avoid another regional
convulsion  courtesy of its cronies.